>2% Shareholder, qualify for Subsidy

[DaveinTexas]

I'm stumped. A client posed a question regarding paying health care premiums through their S Corp (more than 2% shareholder) and whether or not they could still qualify for the new subsidy and I can find no definitive answer; hep me buddies!

Client Question: We now have Obamacare health insurance. Does that change make me in eligible to reimburse myself on my paycheck through the S-corp as has been done in the past? And, yes we did qualify for a subsidy if that matters.

The client followed up the question with a clarifying question:

Follow up question: We are eligible for the subsidy specifically because our new plan is “not reimbursed by an employer”. Technically, our corporation is our employer so the concern is that we will lose the subsidy if the premium is reimbursed through our company.

I look to Notice 2008-1 for the answer and then to the Healthcare.gov website for clarity. That website is the biggest piece of garbage, nice looking but no real content (much like IRS.gov).

Anyone have any guidance I can rely on to help my client?

Thanks in advance!

[ATSMAN]

I think we need to wait for some final regulations regarding this issue but I would think that the >2% sub S shareholder would have the premiums for insurance included in the W2, and then for calculating subsidy it would follow the same rules as everyone else based on modified AGI.

[DaveinTexas]

My thought is

I think we need to wait for some final regulations regarding this issue but I would think that the >2% sub S shareholder would have the premiums for insurance included in the W2, and then for calculating subsidy it would follow the same rules as everyone else based on modified AGI.

since the Premiums are taxable income (reported as Box 1 Wages), the employer really isn't "reimbursing" the premiums. I just wish there was a FAQ about this topic somewhere. Frustrating!

[TaxGuyBill]

What concerns me is that in order to get the self-employed insurance deduction, the insurance plan must be "established under your business".

http://www.irs.gov/publications/p535/ch06.html#en_US_2012_publink1000208843

If it is "established under your business", I would *THINK* it would be determined as employer insurance, and not eligible for the Premium Tax Credit.

I agree, I hope CLEAR guidance come out soon.

[TaxGuyBill]

EDIT: After thinking about it, the following post may be WAY off base, but I'll leave it her just in case. It is still regular health insurance; it's a matter of determining if it's EMPLOYER health insurance or not.


On the other hand, it might not qualify as a "plan" for ACA.

http://www.law.cornell.edu/cfr/text/26/1.36B-2#c_3

The term “eligible employer-sponsored plan” means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is—
(A) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or
(B) any other plan or coverage offered in the small or large group market within a State.

http://www.law.cornell.edu/uscode/text/26/5000A#f_2

The term “group health plan” means an employee welfare benefit plan (as defined in section 3(1) of the Employee Retirement Income Security Act of 1974 [29 U.S.C. 1002 (1)]) to the extent that the plan provides medical care (as defined in paragraph (2)) and including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise.

http://www.law.cornell.edu/uscode/text/42/300gg-91#a

What do you think?

[ATSMAN]

I have seen health insurance established under the s-shareholder's name instead of the business name. Some insurance companies will not issue it under the business name of a sole shareholder s corp.

[TaxGuyBill]

I have seen health insurance established under the s-shareholder's name instead of the business name. Some insurance companies will not issue it under the business name of a sole shareholder s corp.

I agree, but in regards to the Self Employed Insurance Deduction, it is 'considered to be established under the business' if it's in the shareholder's name but reimbursed to the shareholder.

http://www.irs.gov/publications/p535/ch06.html#en_US_2012_publink1000208843

I think my second post about whether it is a 'plan' or not is WAY off base. It's still regular health insurance; it's just a matter of determining if it's EMPLOYER insurance or not.

[geekgirldany]

Well, if this makes any difference. On the instructions/rules for reporting health insurance on Form W-2, using Code DD, the IRS has marked No, not to report Shareholder Health Insurance as Code DD.

http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

So to me that is saying that it is not employer insurance.

[RightOn]

Well, if this makes any difference. On the instructions/rules for reporting health insurance on Form W-2, using Code DD, the IRS has marked No, not to report Shareholder Health Insurance as Code DD.

http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

So to me that is saying that it is not employer insurance.

I agree. It seems the instruction says the health insurance does not have to be reported in box 12 as employer sponsored coverage.

But does it have to be reported in box 14?

[geekgirldany]

Yes, it is still reported in box 14.

[ttbtaxes]

I agree, but in regards to the Self Employed Insurance Deduction, it is 'considered to be established under the business' if it's in the shareholder's name but reimbursed to the shareholder.

http://www.irs.gov/publications/p535/ch06.html#en_US_2012_publink1000208843

I think my second post about whether it is a 'plan' or not is WAY off base. It's still regular health insurance; it's just a matter of determining if it's EMPLOYER insurance or not.

If the Company reimburses the employee in 2014 for the cost of his/her insurance now purchased on the exchange, don't we have to be concerned with the ACA $100 penalty per employee per day that could be assessed to the employer? In other words, a potential $36,500 per year penalty?

[TaxGuyBill]

If the Company reimburses the employee in 2014 for the cost of his/her insurance now purchased on the exchange, don't we have to be concerned with the ACA $100 penalty per employee per day that could be assessed to the employer? In other words, a potential $36,500 per year penalty?

Good point.


The more I think about, the more I think it is EMPLOYER insurance. The fact that no Social Security and Medicare tax is paid for this amount confirms that it is a 'fringe benefit', which means it's employer insurance. If that is the case, the Premium Assistance Tax Credit would not apply.


If it IS employer insurance, the $100/day penalty would NOT apply. That penalty is for an employer who provides insurance that does NOT meet ACA standards, such as an HRA or FSA that is NOT in conjunction with 'regular' health insurance. If the employer insurance meets ACA standards, no penalty applies.

If it were to be determined that it is NOT employer insurance, I would think that it would be a type of HRA and that the $100/day penalty MIGHT apply.

http://www.irs.gov/pub/irs-drop/n-13-54.pdf

[TaxGuyBill]

Dave, I just noticed that you posted this in Tax Almanac as well. If you are not already following it, there is another great discussion related to this.

http://www.taxalmanac.org/index.php/Discussion:Health_Insurance_Reimbursement_Post-ACA

[DaveinTexas]

Busted!

Dave, I just noticed that you posted this in Tax Almanac as well. If you are not already following it, there is another great discussion related to this.

http://www.taxalmanac.org/index.php/...ement_Post-ACA

I just had to, the board has been down for like a month. Plus I knew Chris couldn't resist to answer my question and he usually provides a cite; now I am more confused than ever. I will check out the discussion, thank you for the link.

[geekgirldany]

I have a question, most of my payroll clients have less than 50 employees... really less than 10.

Would it be considered discrimination that the shareholders are reimbursed for health insurance but none of the employees are offered a plan?
What if only one employee gets health insurance but others do not?

I really do not know how the IRS/DHS is going to track or even be able to find out who is liable for the various penalties.